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Friday, July 31, 2015

I will speak tomorrow, August 1, 2015, to the local Democrats in Oakhurst, California. My topic: Inequality as a Threat to the American Middle ClassHere's my outline with the comments I will make.
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WEALTH DISTRIBUTION

half own 1.1% own 12% own 17% own 30%
top 1%
own 40%
0% --------------------25%---------------------50%-----------------------80%---------90%---------100%

no savings under $80,000 average average percentile
$225,000 $500,000 90 - 94 95 to 99
$1.3 mn $3.3 mn
Average for top 1% --- $27 million
Average for all households: $685,000 as of 2015 Q1

Reference: Flow of Funds Report, page i, Survey of Consumer Finances, page 17, showing a 40% drop in median household savings, from $126,400 to $79,300, between 2007 and 2010. In three years the "typical" household lost nearly half its life savings. Is that simple enough? The Congressional Research Service report that shows the lower-half owns but 1.1% of all savings, and Edward Wolff's report here. Wolff states that the median dropped by 47%, from $108,000 to $58,000 between 2008 and 2010. It dropped below its 1969 level.

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Moving in Opposite Directions, the Richest and the Majority
Total private wealth in the past seven years has grown by 36%, adjusting for inflation. See the Federal Reserve's Flow of Funds, page 2.
In seven years since 2008 total private savings for all households in the nation grew
by $28 trillion , from $57 trillion to $85 trillion.
This is a nominal increase of 50% in seven years, a windfall. But, when adjusted for inflation and population growth, wealth increased by 36%. During the same seven years, perversely, the nation suffered its worst economic debacle in 75 years since the Great Depression of the 1930s! Most of the wealth increase went to the already wealthy, the owners of financial assets; and most of the damage of the recession went to the lesser wealthy 90%. Perversely, the instigator of the debacle -- the financial system that collapsed through over-lending -- was rewarded.
To make that $28 trillion understandable, it also equals $88,000 per citizen, and $229,000 per household -- of new or additional personal savings over 7 years.
If we compare the wealth of 2007 with today's wealth, then the increase in personal savings was not 36% but 11%.While the average for ALL households since 2008 increased savings by 36%, the middle household, the median, lost 40%of its life savings, or as Edward Wolff reports, 47%, from $107,500 to $57,000. --- Moving in Opposite directions
Wolff further states, page 10, "Then during the financial crisis of the late 2000s, median non-home wealth nose-dived by
a colossal 60 percent to only $10,000 – is lowest level over the fifty-year period!"

The median had $25,000, then lost 60% or $15,000, now has $10,000 in "non-home wealth". And this is why the liquid asset poverty rate is around 44%, see here. And that means that nearly half of all citizens are in danger of living on the streets after a 3 month period with no income, save for the government safety net programs that aid the low income households. Resentment and bewilderment is understandable. Disgust with the political system that oversaw this perverse enactment is nearly universal. The portion of society that feels itself lower-income, not middle, has increased from 25% to 40% in the last few years. "Today, about as many Americans identify themselves as lower or lower-middle class (40%) as say they are in the middle class (44%), according to a recent Pew Research Center/USA TODAY survey."The lower 40% of households, according to Wolff, see the WaPost graphic below, have no savings.

As the wealthiest 5% of households own 75% of all financial assets, see here page 11 (this SWA report by Sylvia Allegretto is excellent), and financial assets were the source of most of the new wealth, then the top 5% or the wealthiest 6 million households gained about $450,000 per year in wealth, an average total of $3.125 million over seven years. The cash annual income (not life savings) of top-earning 0.9% of households is more than $500,000 per year. The gain in wealth is like a second income, not in cash but in stock value. The new $28 trillion, is not treated as taxable cash income. But what is the difference? It is equivalent to cash; it is a liquid asset, as of course cash is. One possible way to adjust for such windfall increases is a direct tax on financial assets or wealth, just as now the property tax is levied on home values. Or, as a second choice, a tax on financial transactions -- the Robin Hood Tax -- would suffice. Though this is not popular, that could change. The Credit Suisse Bank report World Wealth Report, page 146, shows the composition of wealth in the U.S. as 70% financial and 30% non-financial. (See link below to WWR) The ZeroHedge article, referred to above, shows wealth composed of 82% financial assets, 18% other.

A Double Boost -- Wealth and Income Surge for the Few at the Top -- Everyone else gets creamed
"Top 1% Got 93% of Income Growth" reads the 2012 Bloomberg article. What it fails to mention is the simultaneous surge in wealth benefiting only the wealthiest. Remember the lower half of U.S. families saw their assets reduced by 47%, according to Edward Wolff, and their non-home liquid assets reduced from $25,000 to $10,000, while the annual median income dropped by about $5,000. Below is a good visual of the growth of net worth, or private savings, in America. See the other visuals of private savings at this site, Floating Path. In 2007 private wealth fell by $12.7 trillion. Since 2008 it has grown by $28.4 trillion. Since 2007, wealth has increased by 11%, or since 2008 it has increased by 36%. Both income and wealth went up for the top 5%, BUT income and wealth fell for the lower 80%.
That is the lesson of the Great Recession and Obama's failure to manage the recovery which he inherited from GW Bush. That wealth could be taxed: $28 trillion could easily wipe out the national debt standing at $18 trillion, or the publicly held national debt at $10 trillion. In comparison, the federal government will spend $3.9 trillion in 2015, and the Social Security Trust Fund totals $2.8 trillion. But an even better use of this $28 trillion would be to employ every unemployed and under-employed worker into a living wage job, and that would manifestly and actually improve our national well-being.

Reader, superimpose on this graph the growth of net worth of the lower half of U.S. households. They own 1.1% of all net worth today, see here.
It has been essentially flat since 1952. And we call this progress?
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The average household net worth or savings in 2015 is $685,000. Average is not average, though. About 1 in 10 live in a family with about that much in savings. Only half of all households own more than $80,000, the median. (See here.) And as we've read in the Wolff report, $10,000 in non-home savings is the median, which Wolff reports is less than the 1960 level. Therefore it's not surprising that only a bare 10% of households own the official "average" or more. In the same seven years the median household net worth has fallen from $130,000 to around $80,000, (as I've noted in recent blog entries, below) a fall of 40%, a loss of about 20 to 30 years of savings, or as Edward Wolff claims, a loss of 41 years of savings. Also since 2007 median income, not wealth but income, has dropped 8%, and some 9 million jobs were permanently eliminated with the 1.5 year recession, and millions of homeowners lost their houses through foreclosure during the worst slump in 75 years. Of the Recession, 14 months occurred under G.W. Bush, 4 months under B. Obama.

Wealth Distribution - International Comparison
Among 39 nations, the U.S. has the highest inequality of wealth, save for one nation, Russia.

In Australia the "typical" (or "median" or middle person) adult owns about 4 times more than the typical adult in the U.S. --- 4.2 times more --- meaning he or she owns not $53,352 but $225,337.

Therefore, the typical household savings in Australia is around $450,000, not $80,000 as in the U.S.

Chances are high that one's neighbors in Aussie land are pretty well off. Average wealth per adult in Australia is $537,140; it is wealthier than the U.S. which also is wealthy at $405,671 per adult (see page 146 of Credit Suisse report, linked here). Even though Australia is a very wealthy nation on a per capita basis, it has chosen to share its abundance. Many advanced nations have chosen to share; in these countries the "typical" adult wealth is much higher, often double, that of the U.S. The World Wealth Report, by Credit Suisse Bank, the databook, page 141, shows the relationship between "mean average" to "median" wealth per adult.
The higher the ratio between the median to the average, the greater the inequality gap. In the U.S. average household wealth, $685,000, is 6.6 times greater than the median, $80,000. That is using data from the Federal Reserve. If we use the data from the Credit Suisse report, the ratio is 7.6.
In Belgium the average wealth per household is only 1.7 times greater than median wealth (($476,000 is the average, and $280,000 is the median). Belgium has a lower average than the U.S. ($476,000 to $685,000), but the median is higher ($280,000 to $80,000). Average to median: In Italy average is 1.8 times higher than median, Australia 1.9, UK 2.2, France 2.3, and Norway 4.1. In the U.S., again, 7.6 times greater. Of 39 nations, only Russia has a higher ratio, 8.3.Internationally, the U.S. is about the worst when it comes to sharing prosperity.

If the U.S. had the same ratio as France for instance, 2.6, then most of our neighbors would have $263,000 of household net worth, not $80,000 or less. I believe this would improve the quality of our lives, our families, our neighborhoods in many ways.

These countries are not poor. In fact they are richer. The median wealth in Belgium is greater than the U.S. median by 3.5 times ($280,000 to $80,000 as I showed in the last paragraph). Japan's median surpasses the U.S. median by 2.2. In France by 2.6, in UK by 2.5, in Italy by 2.6, in Norway by 1.6, but in Australia the median adult savings is 4.2 times greater than the U.S. median adult savings. The middle class in these nations enjoys a higher quality of life with far greater security. In simple words, other countries share their economy's surplus among the general population, but in the U.S. the wealthy hoard most of the wealth. And that trend is a threat to our culture, society and economy. Our lives could be greatly improved if we could shift this picture to greater sharing. If others do it, and they do, why not us?

Take a glance at childhood poverty rates among advanced nations, and ask if we can be proud of our record, especially given that our national income per capita, over $37,000, is the highest. Compare our performance with Korea, UK, and Denmark.http://web.stanford.edu/group/scspi/cgi-bin/facts.php
As I report later in this essay, the five nations with the highest income inequality gap among 38 advanced nations are 1) Mexico, 2) Turkey, 3) Chile, and 4) Israel tied with the U.S., the income inequality gap between the 20th and 80th percentile of income earners, as reported by the OECD.
The high child poverty level duplicates this inequality gap. Australia needs to work on its poverty level, obviously.

Page 147 of this Credit Suisse databook shows wealth distribution in deciles among the population of 38 countries of the world. In the U.S. the wealthiest 10% own about 75% of all wealth. In Japan, 48%. These are the two extremes among the 38 nations, except for Indonesia which surpasses the U.S.

The U.N. Human Development Index ranks the U.S. at the 5th place among about 170 nations of the world. When adjusted for inequality, see here Table #3, the U.S. slips down 23 places to #28. This loss of 28 places is exceeded by only one nation, Iran.

40% have Zero net worth in the U.S.A. 44% are liquid asset poor. See here. These households "do not have a basic safety net to weather emergencies or prepare for future needs, such as a child’s college education or homeownership." The BLS states that 43% of the unemployed endure at least 15 weeks (3 months and 2 weeks) of unemployment, see here. The definition of liquid asset poverty: "Liquid asset poverty is a measure of the liquid savings households hold to cover basic expenses for three months if they experienced a sudden job loss, a medical emergency or another financial crisis leading to a loss of stable income."How the Great Recession Became Great
The Federal Reserve's Flow of Funds report, Table D.3 shows household debt, mostly mortgage debt, grew by 95% (nearly doubling) from 1996 to 2008, from 67% of GDP in 1996 to 97% in 2008. Today it stands at 85%. This indicates that the regression of the debt to wealth ratio is a phenomenon of financial wealth growth, not a decline relative to annual GDP output. Meaning aggregate household debt is still high in the U.S. -- for what that may be worth to the typical reader who reads this much of my blog essays. We are not out of the woods.
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INCOME DISTRIBUTION

Income distribution is not as brutal as wealth. The top earning 1% of taxpayers, among 166 million tax returns, not 120 million households, earn about the same amount as the collective total income of the lower-earning 50%. The ratio holds true as well for households as for taxpayers. Both parties earn around 16%, and together they pull in 1/3rd of all income. About 60% of all pre-tax income goes to the higher earning 20% of households. About 50% pre-tax income goes to the top 10%. After-taxes and government transfers, the top 20% received 50% of all income.

The average at the top goes up drastically because the top one percent take in $1.6 million on average. (0.9% of taxpayers earn 16.7% of all income.)

Source: Congressional Joint Committee on Taxation, page 30, 2014
The best source I've seen for distribution of income is from the CBO, here.
This Joint Committee page also shows that the top 5% of taxpayers pay 47% of federal taxes, and 70% of all income taxes, because they earn 32.3% of all income. The top one percent pays 45% of all income taxes with about 17% of total income. The Citizens for Tax Justice shows Who Pays Taxes In America, breaks down the income distribution, and also indicates that the effective overall tax rate for the top 1% is about 33% of their total income. In the 1950s, under Eisenhower, the top marginal tax rate on income above $500,000 was 91%, not today's 44%. See this chart.
The best investigation of income distribution may be that of the Congressional Budget Office, the CBO, see here. It shows average income for all households in 2011 was $93,900 after transfers and before taxes. The median in 2011 was $50,520, see here page 1. Again, the average and the median are a stark mismatch.
Worth noting on page 10, the lowest earning 20% of households, with a pre-tax income of $24,600 receives 19% of its income from government social safety-net transfers, including Medicaid and "Other cash and in-kind" benefits, a total of $4,674, about 1/5th of their income. Therefore, 4/5ths of their income comes from "Labor", Medicare, and Social Security. The report also states that the total social safety-net support equals 4% of national income, which would be today around $576 billion, which seems too small by $100 billion, by my count. The total wage income of half of U.S. workers, 78 million, is less than $900 billion, which is also less than 7% of 2013's national income, see the Social Security Administration report, here, and the BEA.gov report on national income. Ideally the EITC would dramatically increase while the minimum wage would slowly increase, to enable the poorest households to share the great prosperity of our nation --- $93,900 was the average household income in 2011, $685,000 is today's average household savings. Read "Raising America's Pay: Why It's Our Central Economic Challenge", here.

The Rift Grows !!!
If your income was over $161 million last year, you are very wealthy, and you have probably seen a 90% increase in income since 2003. If your income was over $1.3 million, your income since 2003 has increased by almost 50%. If you, along with 80% of U.S. taxpayers, had an income below $85,440, then your "average" income has fallen. All this at a recent article by David Cay Johnson, here. Johnson has come out with a new book, Divided: The Perils of Our Growing Inequality, see here.

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I don't want to distract readers from this essay, but two exceptional analyses can be found here and here. The first from ZeroHedge has a lovely, colorful bar graph, third down, showing all the facets of wealth since 2004, that shows that real (or inflation adjusted) total private wealth has increased by about 40% since 2005, from $60 trillion to $83 trillion. (The Flow of Funds Account (FFA) states a 37% growth in total private wealth, 2005 to 2015 -- so the Zero Hoedge graph seems to draw its data from the FFA.) In the same period the median household's savings has fallen by 47%, to below 1969 levels according to Edward Wolff. Wolff, page 9, "Then between 2007 and 2010, median wealth plunged by a staggering 47 percent!
Indeed, median wealth was actually lower in 2010 than in 1969 (in real terms). The primary
reasons, as we shall see below, were the collapse in the housing market and the high leverage of
middle class families.10"Reading down in the Zero Hedge article, it states that gap in wealth is widening among the U.S. households: "Median net worth of households in the highest quintile was 39.8 times higher than the second lowest quintile in 2000, and it rose to 86.8 times higher in 2011. (Figure 2)."
Reader, is this a threat to middle class shared prosperity?
The second, from the Washington Center for Equitable Growth, shows the portion of total wealth held by the lower-saving 90% has not been so low since 1941.
I also suggest that the reader look at Inequality.org and Inequality.com. The first is a product of the Institute for Policy Studies, the second from Stanford University's Center on Poverty and Inequality. Glance at their "20 Facts about Inequality." Both sites have graphs and data related to wealth and other topics, very enlightening.
Below in this essay you'll find a graphic of wealth distribution published in the Washington Post from data compiled by Edward Wolff.
There are pie graphs of wealth distribution at various places, here, here, here.
The most interesting variant is one that tries to incorporate Social Security payouts, here.
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Inequality in the past 50 years

My favorite Federal Reserve graph shows that 82% of all workers, called nonsupervisory workers, today receive 4% less each week in wages than 51 years ago. The BEA.gov, personal income, here, shows that "disposable per capita income" (meaning after-tax income) has grown since 1964, in chained or inflation adjusted dollars, by 175%, nearly tripling, from $13,485 to $37,084. (See BEA.gov, personal income, 1964 to 2015, chained dollars disposable personal income per capita) If this does not convince you of stark unequal treatment of income, then nothing will convince you.
For the Fed graph go here, then convert 1964's income of $95.50 a week into today's dollars, here, and it will convert to $735.16, the pay in 1964. Then compare it today's pay of $705.26 a week, on average. Annually, that is $36,660 in wage income for full-time and year-round workers.
The U.S. Census, here, shows that income doubled, not tripled, between 1967 and 2013. The "per capita income" "in 2013 dollars" has increased since 1967 by 92%, from $15,026 to $28,829. The great problem with the U.S. Census report is that it misses about a third of the national income. When the total household number (124.58 million households) is multiplied by the average income ($75,738), the total national income appears to be $9.4 trillion. (See here, page 23) The Joint Committee on Taxation (see here page 30) reports a total income for 2014 of $12.736 trillion, and the BEA.gov reports an income of $14.4 trillion. The U.S. Census misses about a quarter of the total.
But do not forget the first sentence above --- wages for 80% have actually dropped.

And while income either doubled or tripled for "per capita" it fell by 4% for 80% of the workers.Is this inequality?

Wrong! -- Now I'll argue the oppositeThe U.S. Census report Income and Poverty, September 2014, page 23, shows that between 1967 and 2013, the portion of households that earn over $100,000 a year has increased from 7.7% to 22.5%. Now between one in five and one in four households are earning over $100,000. That is definite a step forward. And those earning below $35,000 has fallen from 39% to 34%. Everyone, the rich and the poor, are making more income! That is shared prosperity!

But Wait a Minute!

The top one percent received 88.5% of all growth between 1979 and 2012, according to this report.
And they increased their (already oversized) income by 180%, while the lower-earning 99% increased their income be less than 3%. Here's an "info-graphic", a snap-shot of the report:

One of the authors holds two PhD.s in economics.
Now who do you believe?

A look at State of Working America, Income, here, shows that of all the income growth between 1979and 2007, 80.9% of it went to the top 5%, and 19.1% went to the lower 95%. And nearly 60% went to the top 1%.
Hardly an equal sharing of the gains of growth.
Who are the authors of this report? Saez and Picketty? Saez, a professor at University of California, Berkeley, can be found here, see his report Striking It Richer, and Thomas Picketty is the author of the best selling economics book of 2014, Capital in the 21st Century.

The reports from the Economic Policy Institute are the best. Send them a thank you is my suggestion.
The OECD published a report comparing inequality among 34 developed nations. The U.S. ranked tied at fifth most unequal. The comparison between the 20th and 80th percentiles showed Mexico with the highest gap, 1 to 13.3, then Turkey 12.8, then Chile at 8.0, then the U.S. and Israel tied at 7.7. (Or see here, Measure: S80/S20 disposable income) Most European nations had a ratio of 1 to 4. (See here for a quick bar graph, and here, page 56, and here, and here. The OECD is concentrating on the ill effects of Inequality.)

First look at the changes, 2000 to 2012, in the expenses of the family with two children.
See page 8 of this report, The Middle Class Squeeze.

Page 8 shows that the median income for a 2 child and 2 parent family is $84,000, very high. According to another web site, this is the 74th percentile. But reasonable for adults of this age, mid forties with dependent children.

In 12 years the income has increased a bare $600, virtually no growth. Expenses have offset each other: taxes down $4,400, consumer goods down $5,500. But five key or "pillar" expenses have jumped $10,600, these expenses are housing, college savings, health care, child care, and retirement savings.

The 30 fastest growing occupations between 2012 and 2022 are listed here at this report from the Department of Labor. The median for the all the 15.6 million new jobs predicted in the report is $34,750. In July, 2015, the median full-time year-round worker earned $40 050, see here. So the future's faster growing occupations will add 15 million new workers earning about 12% less than today's median worker.

Regarding the "Middle Class Squeeze" report, I quibble with their health care expenses. The Kaiser Family Foundation (here) states that these expenses have doubled between 2002 to 2013. "Family premiums have increased 80% since 2003 and have more than doubled since 2002." (page 12) (This KFF report has a summary graphic.) The average premium costs $16,351 of which the out of pocket cost to employee is $5,884 or 36% (this from the first report cited, page 12). This is a raise in total compensation of $10,467. This raise in compensation is not accounted for in the Middle Class Squeeze report. The actual cost may be $8,600 to the Middle Class family of the example, but their total compensation is under-reported. Let's turn to another source, the Economic Policy Institute "Family Budget Calculator". I turn to Topeka, Kansas, because this locale has the median costs in the nation for 2013. Here we see the expense of health care is $1,342 a month or $16,104 a year. Consistent with the K.F.F. survey results.
On August 26, 2015, the EPI updated their Family Budget Calculator, and they state, "

The basic family budget for a two-parent, two-child family ranges from $49,114 (Morristown, Tenn.) to $106,493 (Washington, D.C.). In the median family budget area for this family type, Des Moines, Iowa, a two-parent, two-child family needs $63,741 to secure an adequate but modest living standard. This is well above the 2014 poverty threshold of $24,008 for this family type.

This report is very helpful to assess the geographic price differences and the variations in household size, in fact 10 different family sizes are analyzed among 618 geographic locations.

Monthly costs

for a family with

2 parentsand2 children

inTopeka, Kansas

Housing

$692

Food

$754

Child Care

$1,181

Transportation

$603

Health Care

$1,342

Other Necessities

$370

Taxes

$339

Monthly Total

$5,280

Annual Total

$63,364

A look at the family's expenses shows that about a quarter are for child care and a quarter are for health care.

Now we look a little further, to the table showing working age family incomes, courtesy of State of Working America, an Economic Policy Institute project.

I'll be! The graph seems to
come across onto this blog.

Median expenses: $63,634
Median income: $65,577
That means that about half the families of working age will have expenses greater than income,
and half will not.
What does that say for the "middle class", typical or iconic family in America?
Half are struggling.
Recently the Pew Surveys stated that 40% of Americans self-described as low-income, 44% as middle class, and 16% as upper.

1. Government-led job creation
(this is my #1 choice, and if you look through this blog you will find that I report several times on Philip Harvey's government job creation plan "Back to Work", or the Congressional Progressive Caucus budget proposal for a 3 year expense of $350 billion a year creating 8.5 million full-time year-round jobs, with additional support for later years. You will find references to plans and specifications that would return the nation to high employment, living wages and rising wages for all workers, and shared prosperity. Also look at the analysis of Bivens, here, and of Scott, here, of the EPI, detailing the effects of a $250 billion debt-financed infrastructure program.

2. National infrastructure renewal

3. A rededication to public education
(and I encourage readers to read Diane Ravitch's book Reign of Error)

4. Universal single-payer healthcare,
often known as Medicare for All.
Senator Bernie Sanders is sponsoring such a measure.

5. Higher taxes on higher incomes
Mr. Picketty, the best selling author of Capital in the 20th Century, whom I note above, supports a highest marginal income tax rate of 80% applicable to only income exceeding $457,000. The current rate on this high income is almost 44%. The Joint Committee on Taxation reports that only 0.9% of taxpayers earn over $500,000. Their share of total income is 16.7%, or one sixth of all income.)

6. Refinancing Social Security7. Stronger bank regulation8. The right to join a union 9. living minimum wage10. 10 sick days, 10 holidays, and 10 vacation days11. An end to the prison state Look at the incarceration rate change at this site, lower left graph. 12. Secure reproductive rights13. Making it easier to vote14. Closing down the NSA15. More humane treatment of refugees16. Addressing global warming

I add some other reforms:
instituting higher Earned Income Tax Credit,
creating Individual Development Accounts,
supporting the proposals found in the book on The Bankers' New Clothes by Admati and Hellwig,
reducing the size of the U.S. military,
and creating publicly funded elections, outlawing campaign finance contributions.
And the concept of employee profit sharing and ownership sharing needs a revival, as documented in the book The Citizen's Share. Profit and ownership sharing was promoted in the 1880s and was very popular among capitalist titans in the 1920s, but today it has renewed appeal not to be dismissed. After all half of U.S. employees work in firms with more than 500 employees, and 75% work in firms with more than 20 employees.
I realize I've smothered the readers with fact, reference and detail. The crux of my argument I find summed up best in the Introduction to Joan Tronto's book, A Caring Democracy, available for reading here. She says, "what it means to be a citizen in a democracy is to care about citizens and about democracy itself. . . . What has gone wrong . . . is that we have lost sight of the other side of existence besides the world of the 'economy.'" Caring is the work of living. Take a look.